Stock markets fell sharply on Wednesday as a raft of disappointing economic data from the United States reignited investors’ concerns surrounding the global recovery and offset strong gains in Asian deals.
Rumors of forthcoming stimulus measures in Japan boosted the country's Nikkei 225 to finish 1.3% higher, while other Asian markets also turned modest gains.
But as weekly jobless claims continued to climb in the United States, European markets and Wall Street traded sharply lower with all sectors in the red. According to the US Labor Department, weekly initial jobless claims came in at 500,000 for the first time since November 2009. The new data marks an increase of 12,000 and a step backward in the jobs recovery. Investors had hoped for claims to fall below 450,000.
More weak economic data came in the shape of the Philadelphia Fed Index for August, which reported a one-year low of negative 7.7, far worse than the positive 7.0 that had been predicted. While an index of leading indicators ticked up 0.1% in July, the increase fell short of the forecasted 0.2% gain.
As such, the UK’s stronger-than-forecast retail sales data was largely overshadowed. The month-on-month growth in sales volumes mustered a 1.1% increase, several times above consensus expectations. “The news brings the annual rate of retail sales growth to 2.8% from a year to July which is consistent with our view that the UK has managed to steer clear of a double-dip recession,” commented the Centre for Economics and Business Research’s Shehan Mohamed.
Still, the FTSE 100 index fell back 86.8 points or 1.6% 5,216.1, while the FTSE 250 index shed 40.6 points or 0.4% to settle at 9,846.2.
The vast majority of London’s top tier equities closed in the red, led lower by miners such as Vedanta Resources and Eurasian Natural Resources, down 4.4%-4.8% each, and financials including Prudential and HSBC (2.7%-3.0% weaker). The latter was in the headlines following news it is currently considering the sale of its US mortgage unit, along with other options including a merger, after the bank's personal finance division reported a $1.58 billion pretax loss in the first half of the year.
In other M&A news, BHP Billiton remained on the spotlight after yesterday taking its move on PotashCorp hostile. Morningstar analyst Mark Taylor says PotashCorp's assets are a fertile stomping ground for the likes of BHP but there are still some very real risks.
Among the few blue-chip gainers, support services group Serco ticked up 2.6%, while chipmaker ARM Holdings added 1.9%. The latter was bolstered by tech M&A news after Intel said it would buy security software maker McAfee for $7.7 billion, representing a 62% premium over its closing price. Shares of McAfee surged 57.4%.
